SOLUTION: You have seen a credit card advertisement stating that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of

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Question 696569: You have seen a credit card advertisement stating that the annual percentage rate is 12 percent. If the credit card requires monthly payments, what is the effective annual rate of interest on the loan?
Answer by jim_thompson5910(35256) About Me  (Show Source):
You can put this solution on YOUR website!
EAR = Effective Annual Rate
i = annual interest rate
n = number of compounding periods

EAR = (1 + i/n)^n - 1

EAR = (1 + 0.12/12)^12 - 1

EAR = (1 + 0.01)^12 - 1

EAR = (1.01)^12 - 1

EAR = 1.12682503013197 - 1

EAR = 0.12682503013197

Multiply this by 100 to get 12.68%

So the effective annual rate is 12.68%